Family Dollar Closing 370 Stores, Slowing Growth

Layoffs, lowering prices also part of strategic business review

MATTHEWS, N.C. -- Convenience-store channel rival Family Dollar Stores Inc. said it is closing approximately 370 of its discount stores and slowing new-store growth, laying off an unspecified number of employees and lowering prices on nearly 1,000 basic items. The move follows the reporting of second-quarter fiscal 2014 net sales of $2.7 billion, a 6.1% decline over $2.9 billion in the comparable period of 2013.

"These results did not meet our expectations," said Howard R. Levine, chairman and CEO during the company's earnings call and in a press statement. "The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer. In addition, like many retailers, our second-quarter results were significantly impacted by severe winter weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses."

But he said, "Notwithstanding the macro-economic pressure, competitive environment and severe weather, we are not satisfied with our results, and we hold ourselves accountable for improving our performance. To that end, we have initiated an in-depth business review to identify opportunities to strengthen our value proposition, increase operational efficiencies and improve financial performance."

He added, "We are taking immediate, strategic actions to improve our performance. First, we have made a significant investment to lower prices on about 1,000 basic items. Second, we are reducing our cost structure through the optimization of our workforce. Third, we will close approximately 370 underperforming stores. Once complete, our workforce reduction efforts and store closures are expected to result in $40 million to $45 million of annualized operating profit benefit, beginning in the third quarter of fiscal 2014. Lastly, we intend to slow new-store growth beginning in fiscal 2015 to improve our return on investment."

Levine said that it is closing older stores with lower sales volumes "about half of what the average is, so around $650,000. … The closing of these stores will improve the productivity metrics of the remaining chain."

Family Dollar now plans to open 350 to 400 new stores in fiscal 2015, down from approximately 525 stores in fiscal 2014.

"New stores have always delivered the highest return on investment for Family Dollar, but as our operating margin has contracted and our capital investment has increased, our return on investment trends have been pressured. To improve these trends, we have reevaluated our site selection criteria and refined our real-estate models to reflect the current sales environment and sales insights from store openings over the last three years," he said.

"Our renovation program is critical to improving the shopping experience for customers and we remain committed to renovating our entire chain. Renovated stores continue to outperform stores that have not been renovated. We plan to continue to renovate, relocate or expand about 800 stores a year.

Regarding pricing, "over the last several years, as our use of discounts and promotions increased, our value proposition and perception has deteriorated," Levine said during the call. "While our customers satisfaction scores continue to improve, we believe that we have an opportunity to improve our everyday value proposition. … We have a number of stores that are great food stores, almost acting as a small grocery store in some of the communities and are probably under-spaced in what we offer in terms of food. So we will be able to tailor a mix that's more appropriate for those stores."

Matthews, N.C.-based Family Dollar has more than 8,100 discount stores in rural and urban settings across 46 states.

Since 2003 CSP magazine has ranked No. 1 in readership and market share over all other industry publications. C-store marketers have identified CSP as the preferred magazine source for their trade marketing communications. With industry-leading, highly targeted circulation to more than 100,000 subscribers, CSP reaches the key convenience retailing decision-makers fifteen times a year.